Why oil will drop to $35 by end of summer

Why oil will drop to $35 by end of summer

The state of the oil market these days can be summed up in a four-letter word—no, not one those salty terms, by a powerful, unoffending term: glut.

After peaking in early June, near $52, WTI oil prices have fallen upwards of twenty percent, getting under $41 per barrel, for a time, on Friday.

There were several supply issues that ranged from the Canadian wild fires to renewed unrest in the Niger Delta that combined to reduce global oil output, or so it seemed.OPEC production has risen steadily, with Iran, Iraq and Saudi Arabia leading the way.

In fact, Iran claims to need only two more months to return to full pre-sanction production levels, having already reached 80 percent mark. Their aggressive marketing efforts are bearing fruit, as sales to their historical customers in Asia have risen nearly 50 percent in June, from year ago levels.

The glut is a global phenomenon, with record gasoline inventories at the main European trading hub in the Amsterdam region, and an over-supplied diesel fuel market in Asia, coupled with brimming supplies in storage of all things petroleum in the United States.

There was a rush to judgement by many in the market that supply-demand dynamic was coming to balance. Some observers actually declared it balanced already.

Meanwhile, the price curve, especially for diesel fuel, is steepening (longer-dated futures contract prices are appreciably higher than that for near-term contracts), encouraging more and more stockpiling of the fuel, including a surge in the use of floating storage.

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